EU Council Approves VAT Derogations For Four States

by Ulrika Lomas, Tax-News.com, Brussels

19 October 2017

In Volume 60 of the Official Journal of the European Union (L 265), published October 14, the European Council approved four proposals for council implementing decisions in respect of derogations sought by member states from the EU VAT Directive.

Under the VAT Directive, the European Council can authorize any member state to apply special measures that derogate from the Directive, to simplify the procedure for collecting value-added tax (VAT) or to prevent tax evasion or avoidance.

Two of the decisions provide that Lithuania and Romania may continue to apply higher than otherwise permitted VAT registration thresholds of EUR45,000 and EUR88,500, respectively, from January 1, 2018, when their existing derogations were due to expire, until December 31, 2020.

Another decisions grants Poland the ability to apply the reverse charge mechanism to sales of hard drives, such as solid-state drives and hard disk drives, to prevent VAT fraud. The derogation is permitted from January 1, 2018, to December 31, 2020.

The application of a reverse charge is intended to tackle missing trader intra-Community fraud, which manipulates EU place of supply rules on intra-community trade. Exports between member states are zero-rated while domestic transactions are standard rated. Fraudsters often import small, high-value goods into a member state and resell the goods at a discount to the domestic market, collecting the VAT and disappearing before remitting the sum to local authorities. By switching the obligation to account for VAT from the seller to the recipient, the reverse charge is intended to ensure that another trader's VAT is never passed up the supply chain, removing the requirement for the supplier to collect and remit VAT, and thereby eliminating the potential for missing trader fraud and other permutations of the scheme.

The final Council decision allows Estonia to continue to restrict the right to deduct VAT on the purchase, leasing, intra-Community acquisition, and importation of certain passenger cars and to relieve the taxable person from accounting for VAT on the non-business use of vehicles covered by the restriction. With this decision, it is allowed to continue to restrict to a set percentage – 50 percent – the right of deduction on business vehicles that are also used for private purposes. This decision extends the derogation granted in 2014, which stated that it should apply to all passenger cars with a maximum of eight seats, plus the driver's seat, which do not exceed 3,500kg, and which are not used exclusively for business purposes.

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